RBI comes out with Digital Rupee: Is it like Bitcoin, and should you invest in it?

RBI announced the launch of its much-awaited Central Bank Digital Currency (CBDC).

The Reserve Bank of India (RBI) on Tuesday announced the launch of its much-awaited Central Bank Digital Currency (CBDC) or what it calls, digital Rupee. The pilot for this digital version of cash money will kick off on Thursday, December 1. For the testing, the RBI has partnered with four banks to start with and initially, the service will be available only in select cities.

Starting December 1, the first phase of the pilot will begin with four banks including — State Bank of India, ICICI Bank, Yes Bank, and IDFC First Bank in Mumbai, New Delhi, Bengaluru, and Bhubaneswar. Going forward, four more banks will join the pilot including — Bank of Baroda, Union Bank of India, HDFC Bank and Kotak Mahindra Bank. The central bank also said to expand the facility across many more Indian cities, including Ahmedabad, Gangtok, Guwahati, Hyderabad, Indore, Kochi, Lucknow, Patna, and Shimla.

Currently, there are no details about when the public rollout of digital Rupee will happen, but by the looks of it, the official rollout will take some time. With the pilot, the RBI wants to first test the “robustness of the entire process of digital rupee creation, distribution, and retail usage in real-time. “Different features and applications of the e-Rupee token and architecture will be tested in future pilots, based on the learning from this pilot,” RBI said.

Digital Rupee vs Cryptocurrency

So, what is digital Rupee exactly? Well, many may link it to cryptocurrency, but there’s no connection between the two. Crypto is based on Blockchain technology, while digital Rupee is a form of digital token that represents legal tender.

Unlike cryptocurrencies, the digital Rupee or e-Rupee is issued in the same denominations as paper currency and coins. The value of crypto including Bitcoin is volatile, but digital Rupee’s value remains the same all throughout. While users can invest in crypto, in the case of digital Rupee banks assign them to customers. The exact process of assigning digital Rupee to customers has not been revealed yet.

How to use digital Rupee

So, how will digital Rupee work? Will users be able to shop using digital Rupee? Answer is: Yes, users will be able to use digital Rupee to buy goods and shop from their nearest kirana stores. The transaction in digital Rupee can happen between Person to Person (P2P) and Person to Merchant (P2M). “The e-Rupee would offer features of physical cash like trust, safety and settlement finality. As in the case of cash, it will not earn any interest and can be converted to other forms of money, like deposits with banks,” the central bank stated.

The RBI said that digital Rupee will be distributed through intermediaries like banks to customers and merchants. In an interview with Moneycontrol, V Vaidyanathan, managing director and chief executive officer of IDFC First Bank said that “banks will indent digital currency of specific denominations and such digital currency will appear in the banks’ wallets. When the customer will indent them the bank will provide them digital currency.” None of the other partner banks have specifically revealed how customers will be able to get access to digital Rupee.

RBI has previously clarified that users will be able to transact with e-Rupee through a digital wallet offered by the eligible banks and stored on mobile phones or devices. Customers will be able to make payments through e-Rupee using QR codes displayed at merchant locations, just like online transactions are done. The exact process to use digital Rupee will be clear once the pilot begins on Dec 1.